ABSTRACT
Now that the reader understands the basic elements of fraud, we move on to an essential component of the Red Flag System: the dynamics and root causes of fraud.
There is a great deal of research on who commits fraud. Studies have found the following characteristics of the typical fraudster:
• Roughly two-thirds of fraud cases are committee by males.* • About half of all fraudsters are between the ages of thirty-one
and forty-five.† • More than half of fraudsters have a college degree or higher.‡ • More than one-third of fraudsters work in a finance function.§
• About 35% of fraudsters were in senior management and 18% were at the board level.*
• About half of fraudsters were at their organization for 6 years or more; 22% of them had been there for more than 10 years.†
There are two widely used models for understanding what motivates fraudsters and the related environmental conditions that facilitate fraud. One is the “fraud triangle.” It was developed in the 1950s and 1960s by the late American criminologist Donald Cressey. The second is the “fraud diamond,” an enhancement of Cressey’s model that was developed in the 2000s by two American accounting experts, David Wolfe and Dana Hermanson. We will present both models because they are in many ways complementary.
